Finance, tax & support schemes
Tax regime
Power production and infrastructure projects usually involve significant investments, high risk and often several years of negative cash flow. This requires competent handling of capitalization vs. cost, tax profit/loss consolidation, VAT administration, tax processing of financial structures and interest costs, and tax incentive schemes. This is especially the case for joint venture structures and/or cross-border constellations.
The current tax regime does not regulate offshore wind specifically, which means that Norwegian companies will be liable to tax in accordance with the general tax rules. On February 21, 2022, the Ministry of Finance proposed a change in the Norwegian Tax Act, widening Norway’s taxation right on the Norwegian continental shelf to cover foreign companies’ income from production of energy from renewable resources, including offshore wind. The new rules are likely to enter into force from 2024, implying that foreign companies will become subject to the same tax rules as Norwegian companies.
A “super-profit tax”, also called a ground rent tax or resource rent tax was introduced for land wind with effect from 2023. The Government has stated that they have no intention of introducing any similar tax on offshore wind.
In addition to producing power for ordinary consumption, offshore wind projects are expected to produce power for electrification of petroleum installations on the Norwegian Continental Shelf.
For offshore wind projects that are linked to petroleum production, i.e. to provide electricity to petroleum installations, the MPE will decide depending on the degree of affiliation if the petroleum tax regime will apply. For the sake of clarity, the companies may from an early point on, for example prior to the investment decision, request a statement from the tax authorities about the processing of a specific project.
The special tax incentives for new investments on the continental shelf, together with the ever-increasing CO² tax associated with the operation of gas turbines at the installations in the North Sea, will increase the petroleum companies’ demand and willingness to pay for power from offshore wind.
Financing
In order to be able to finance the development and construction of the proposed and future offshore wind farms, it is vital that the project companies are able to provide adequate security to the financial institutions financing the project. Without external debt project financing of the projects, it is unlikely that any stakeholder can or will finance an entire project solely on their balance sheet.
In offshore wind project financing, the most suitable assets which can be used as collateral are the turbines/assets/installations, the licenses, and perhaps the cashflow under a PPA or CfD (if applicable).
Unfortunately, there are currently no legal grounds for the pledging of offshore wind assets as security in Norway. The consequence is that under the current legislation, it is not possible to establish security in offshore wind installations or licenses in Norway.
Unlike onshore wind, where the land, assets and cashflow easily can be pledged based on existing legislation, no applicable legislation has been adopted that permits pledging of the assets of an offshore wind project company.
In the petroleum industry however, the Petroleum Act and the security legislation have been adapted so that pledges may be granted over licenses, rigs and other installations, which makes it significantly easier to secure financing and get access to capital.
The MPE is currently considering whether it will open up for pledging of offshore wind installations and/or licenses, in order to facilitate for project financing of offshore wind projects. The MPE will be assessing the need for legal grounds for pledging and the possibility of establishing a register for rights in facilities for offshore renewable energy production, similar to the corresponding register for petroleum related pledges.
Several stakeholders have pointed out that the possibility of pledging facilities and/or licenses will be crucial in terms of financing.
Support schemes and subsidies
There are currently no rights-based support schemes, neither statutory nor more ad hoc based, related to offshore wind. The authorities have expressed that the development of offshore wind projects in general will not be subsidized. Offshore wind was discussed in the state budget of 2021, where it was concluded that no new and general support schemes will be introduced, and furthermore that Enova will continue to be the relevant financing mechanism (state owned entity focusing on support to technology development).
Nevertheless, The Ministry of Petroleum and Energy has on March 31 2023 proposed a preposition to Parliament for authorization to enter a two-sided contract for difference for renewable energy production. The proposed support scheme was furthermore changed, with a higher support and a removal of the proposed reservation price of NOK 0,66 pr. kWh in June 2023. The Parliaments hearing of the changes to the support schemes can be found here: https://www.stortinget.no/no/Saker-og-publikasjoner/Saker/Sak/?p=93724
Sørlige Nordsjø II
The two-sided contract for difference for renewable energy production was originally proposed to have a reservation price of NOK 0,66 pr kWh. No bids above the reservation price was to be taken into account. However, following the increase in level of costs for offshore wind, the Government, with backing from the Parliament, decided to increase the maximum level of support from 15 billion NOK to 23 billion NOK and to remove the reservation price for SN II. The auction model is a British auction with open bidding. In case of a draw, the highest score in the pre-qualification criteria will prevail. The contract for difference (CfD) contract will be published at a later stage.
The maximum amount of subsidies will be mirrored for payment from the developer to the state.
Utsira Nord
Utsira Nord will be awarded to three successful applicants on the basis of qualitative criteria. The project areas must each have a minimum of 460 MW installed capacity and a maximum of 500 MW.
NVE has in its report from April 25, 2023 recommended that the Utsira Nord subareas are expanded with an increase of capacity up to 750 MW, meaning that each of the three areas could add 250 MW of production capacity each. The option to expand will be concluded by the MPE before the competition for financial support.
Post award, the three successful applicants will compete for a support scheme. The support scheme will be based on a two-sided contract for difference for renewable energy production at sea, with a duration of 15 years. As for SNII, there will be a maximum limit for the support that will be available both through a monetary cap and that the support only will be available for 500 MW. Even if the total production capacity will end up being 750 MW.
The Norwegian Government will propose a preposition to Parliament with a proposal for a cost framework and a commitment authorization for support. In the proposal, the Norwegian Government will propose that one project does not obtain state funding. The details of the support scheme and caps will be announced before the competition for the support scheme.
After the areas have been allocated, the developers will conduct an impact assessment and mature the areas further before a competition for state funding is carried out. The project that does not receive state funding will retain the right to the area for a period and may use the general public support system and might become eligible to participate in possible future competitions for support.
As of today, the following support schemes exist:
Enova, a Norwegian governmental enterprise
Enova is responsible for the promotion of environmentally friendly production and consumption of energy, provides funds for the development of renewable energy but does so on a project-based basis. It is not a rights-based support scheme and a project may only receive financial support if and when it reaches a satisfactory point of maturity. It is not likely that bottom fixed offshore wind installation projects will be eligible for financial support from Enova.
Horizon Europe (successor of Horizon 2020)
Horizon Europe is an EU program which, among other things, allocates funds to renewable projects. Under Horizon 2020 the EU distributed MNOK 290 to a demonstration project outside Karmøy.
Export Financing Norway (EksFIN)
EksFIN has a role in the development of renewable energy in Norway and has financially contributed to several onshore projects.
In the absence of clarification on the financial framework (e.g. depreciation rules, tax rates), it is not possible to predict what the need for support schemes will be. In February 2022, government however, reaffirmed the need for state aid but did not provide any further clarifications regarding financial support schemes.
General overview on foreign investments in Norway
In general, the Norwegian State welcomes foreign investment and there are few restrictions on such investments. Under the terms of Norway’s international commitments, foreign persons have the right to travel, and to enter into commercial- and trade activities in Norway. Specifically, foreign persons are afforded “national treatment” by the Norwegian authorities with regard to such activities. There are no incentive schemes aimed specifically at foreign (or Norwegian) investors.
Although local and foreign investments in Norway normally are to be treated equally, some exceptions apply. These exceptions relate to the fisheries and agricultural sectors, from which foreign investments in general is excluded. No exceptions apply to offshore wind activities.
The most important forms of commercial enterprises in Norway are private or public limited liability companies and general or limited partnerships. A private limited liability company is the business form most widely used by nonresidents of Norway, although some foreign business choose to establish local branches rather than subsidiaries, a decision that is sometimes influenced by the absence of withholding taxes on remittances of branch profits.
The following table provides a general comparison of the features of the various forms of doing business:
| General Partnership | Limited Partnership | Private Limited Liability Company | Public Limited Liability Company | |
| Owner’s liability for company debts | Joint and several, also personal liability | General partner: joint and several, also personal liability. Limited partner: for invested capital | No personal liability. Risk normally limited to capital invested. | No personal liability. Risk normally limited to capital invested. |
| Capital | No | Minimum NOK 22,223 | Minimum NOK 30,000 | Minimum NOK 1,000,000 |
| Numbers of owners / members required | At least two individuals or legal entities | At least two individuals or legal entities | Minimum one shareholder (individual or legal entity) | Minimum one shareholder (individual or legal entity) |
| Authority to act on behalf of the company | The partners | The general partner | Board of Directors and Managing Director | Board of Directors and Managing Director |
| Auditor compulsory | Only if annual turnover exceeds NOK 5 million or all partners are legal persons where one of their owners have personal liability for the legal person`s liability, and the annual number of persons-years exceeds 10 or the balance sheet exceeds NOK 20 million | Only is annual turnover exceeds NOK 5 million or all partners are legal persons where one of their owners have personal liability for the legal person`s liability, and the annual number of persons-years exceeds 10 or the balance sheet exceeds NOK 20 million | Only is annual turnover exceeds NOK 6 million, or the annual number of person-years exceeds 10 or the balance sheet total exceeds NOK 23 million | Yes |
| Liability to tax | The partners | The partners | The company | The company |